Earnings season continues as America’s two largest commercial banks, Bank of America and JP Morgan Chase released their earnings statements for Q3. Accounting trickery was prevalent, but notably JP Morgan Chase surpassed Bank of America to become the largest bank in the United States, as measured both by deposits and assets.

Bank of America (NYSE: BAC) posted a hefty $6.2 billion profit, or $0.56 per diluted share, a number that takes all outstanding stock options into account; this far exceed’s last year’s Q3 earnings report from the bank, which reported a net loss of $7.3 billion.

Those who have been following the troubled lender might be surprised to see such healthy profits, and they’d be right. Let’s look at where they came from.

  • $4.5 billion pretax revenue from “positive fair value adjustments on structured liabilities”
  • $3.6 billion pretax revenue from the sale of China Construction Bank
  • $1.7 billion pretax revenue from “trading Debit Valuation Adjustments”
  • $2.2 billion loss in private equity.

As Zero Hedge points out, the positive fair value assessments and the DVA account for the full $6.2 billion in net profits that the bank is reporting, and they’re not really revenue: they’re accounting “gimmicks” that turn poor bond performance into on-the-book profits. And aside from the sale of China Construction Bank stock, it isn’t totally clear how valuable BofA’s core business was.

Meanwhile, JPMorgan Chase (NYSE: JPM) reported net income of $4.3 billion, or $1.02 per share, roughly equal to their Q3 earnings last year: $4.4 billion. The bank suffered some significant losses on their books this quarter, including $542 million in private equity losses and $1 billion in litigation expenses, “predominantly for mortgage-related matters.”

But that didn’t stop the bank from surpassing Bank of America as the biggest bank in the country as measured by total assets and total deposits. According to their period end balance sheet, JPMorgan Chase finished Q3 with $2.289 trillion in assets and $1.093 trillion in deposits. Bank of America posted $2.220 trillion in assets, and $1.041 trillion in deposits. Chase had more in deposits than BofA at the end of the previous quarter, by $10 billion, but still lagged in assets. Now it leads in both.

Bank of America is slowly whittling down its business to something more streamlined and profitable — not small by any means, but smaller — so now we can look to JPMorgan Chase when we want to shake our fist at large financial institutions.

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